Essays on inequality, social mobility and redistributive preferences in Transition Economies

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In this dissertation I rely on attitudinal and subjective well-being data from Transition Economies to examine several aspects of the relationship between inequality, social mobility and citizens' preferences for government involvement in redistributive policies. In the second chapter I suggest that if aversion to inequality is driven by social mobility considerations or by differences in status between self and relevant others, then aggregate statistical indices of inequality will be unable to capture in a meaningful way changes in status implicit in inequality dynamics. An alternative test of inequality aversion that derives from the experimental literature is adopted, that is better able to capture status driven aversion to inequality. The third chapter investigates empirically the link between the prospects of upward mobility (POUM) and preferences for redistribution. The POUM hypothesis is tested while directly accounting for other factors affecting preferences for redistribution such as risk aversion, beliefs regarding effort and luck as determinants of success, past economic mobility, or religious preferences. The chapter then looks at what shapes individuals' beliefs vis-a-vis future economic mobility. In particular, I examine the role of perceived inequality of opportunity, conceptualized in the spirit of John Rawls. The fourth chapter is concerned with the body of literature that suggests that relative status is an important determinant of well-being by looking at the effect of one's income relative to some reference group on self-reported life satisfaction. In most of these studies the data come from developed countries, while the reference group of the individual is unknown, and thus imposed by the researcher. This essay looks instead at self-reported relative deprivation based on data from six countries from different parts of Eastern Europe and Former Soviet Union and which are at different levels of economic development. The relative salience of several reference groups is examined. Given the cross-sectional nature of the data, an instrumental variable strategy is employed to establish a causal link between relative deprivation and the level of satisfaction with the household's standard of living.